TAIT 10-K & 10-Q changes, risk factors and insider trading

In 2024, we had one (1) customer accounting for more than 10% of our net sales, for approximately 68%. In 2023, we had three (3) customers accounting for more than 10% of our net sales, for approximately 52%, 14% and 12%. In 2022, we had two customers accounting for more than 10% of our net sales, for approximately 46% and 24%. As of December 31, 2023,2024, we had one (1) customer accounting for more than 10% of our trade accounts receivable, net of allowances, of approximately 40%86% and as of December 31, 20222023 we had one (1) customer of approximately 78%.40%. In the event our largest customers were to decrease their demand for our products or in the event such customers ceased to purchase products from us, our operations would be materially and adversely impacted.

- 1111 - - Additionally, if an infringement claim is successful, the company may be required to pay damages or seek royalty or license arrangements, which may not be available on commercially reasonable terms. The payment of any such damages or royalties may significantly increase the company'scompany’s operating expenses and harm the company's company’s operating results and financial condition. Also, royalty or license arrangements may not be available at all. The company may have to stop selling certain products or using technologies, which could affect the company'scompany’s ability to compete effectively.

Use of Estimates – We have made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K in accordance with generally accepted accounting principles in the United States. These estimates have a significant impact on our valuation and reserve accounts relating to the allowance for sales returns and allowances, doubtfulcredit accounts,losses, inventory reserves and deferred income taxes. Actual results could differ from these estimates.

Revenue Recognition – Revenue is recognized at the point at which control of the underlying products are transferred to the customer. Satisfaction of our performance obligations occur upon the transfer of control of products, either from our facilities or directly from suppliers to customers. We consider customer purchase orders to be the contracts with a customer. All revenue is generated from contracts with customers. Reserves for sales allowances and customer returns are established based upon historical experience and our estimates of future returns. Sales returns for the years ended December 31, 20232024 and 20222023 were $0. The allowance for sales returns and allowances and doubtfulcredit accountslosses at December 31, 2023 2024 and 20222023 aggregated $7,000. We review the actual sales returns and bad debts for our customers and establish an estimate of future returns and an allowance for doubtfulcredit accounts.losses.

Deferred Taxes – If determined that it is more likely than not that we will not realize all or part of our net deferred tax assets in the future, we record a valuation allowance against the deferred tax assets, which allowance will be charged to income tax expense in the period of such determination. We also consider the scheduled reversal of deferred tax liabilities, tax planning strategies and future taxable income in assessing if deferred tax assets could be realized. We also consider the weight of both positive and negative evidence in determining whether a valuation allowance is needed. However, we have fully reduced by $1,915,000 the entire valuation allowance against our net deferred tax assets during the year ended December 31, 2022 primarily as a result of our recent history of net income.

Our core strategy has shifted to primarily focus on higher margin ODM Projects that require custom products designed for specific applications to OEM customers, and away from actively marketing our superstore strategy of maintaining a vast quantity of electronic components to fill customer orders immediately from available stock held in inventory. As a result, we expect our components inventory will be more passively marketed and distributed online for clearance through our internet sales portal, however at potentially lower rates due to the pricing pressures normally attributed with online shopping. In 2023, we recorded a $74,000 increase to our inventory reserves.

- 1414 - - In accordance with generally accepted accounting principles, we have classified inventory as a current asset in our December 31, 2023,2024, consolidated financial statements representing approximately 20.3%22.9% of current assets and 14.4%16.7% of total assets. However, if all or a substantial portion of the inventory was required to be immediately liquidated, the inventory would not be as readily marketable or liquid as other items included or classified as a current asset, such as cash. We cannot assure you that demand in the discrete semiconductor market will increase and that market conditions will improve. Therefore, it is possible that further declines in our carrying values of inventory may result.

Selling, general and administrative expenses were $2,248,000$2,222,000 and $2,158,000$2,248,000 in 20232024 and 2022,2023, respectively, which represented 36.8%53.7% and 25.6%36.8% of net sales for those periods. The year-over-year increasedecrease of $90,000$26,000 was primarily due to personnel costs.

Operating (loss)income was ($104,000) and $1,200,000 and $2,235,000 in 20232024 and 2022,2023, respectively, which represented 19.6%-2.5% and 26.5%19.6% of net sales for those periods.

- 1515 - - Cash providedused byin operating activities increased decreased to $3,150,000($258,000) during 2023,2024, as compared to $1,691,000provided by $3,150,000 in the prior year. The $1,459,000$3,408,000 increasedecrease was primarily due to changes in inventory, accounts receivable, values of marketable securities, deferred income taxes, accounts payable and net income.

Cash used for investing activities was $1,011,000$547,000 during 2023,2024, as compared to $968,000$1,011,000 in the prior year. The increasedecrease was from purchase of short-term investments (see also Item 8 - Note 1 – Short-term Investments).

Cash used in financing activities was $1,148,000$1,204,000 during 2023,2024, as compared to $1,495,000$1,148,000 in the prior year. In 2024, we made dividend payments of $1,204,000. In 2023, we made dividend payments of $1,202,000 and received proceeds from the exercise of stock options of $54,000. In 2022, we made dividend payments of $1,703,000 and received proceeds from the exercise of stock options of $208,000.

We had no material off-balance sheet arrangements that have, or are likely to have, a current or future material effect on our operations.operations other than our outstanding commitments to purchase inventory (see Item 8 - Note 12 – Commitments and Contingencies).

The discussion of our business and operations should be read together with the risk factor set forth below and the risk factors contained in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024, which describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner. As of AugustNovember 14, 2025, there have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2024.

Revenue Recognition – Revenue is recognized upon shipment of the products, which is when legal transfer of title occurs and control of the product is transferred to the customer. Reserves for sales allowances and customer returns are established based upon historical experience and our estimates of future returns. Sales returns for each of the three months ended JuneSeptember 30, 2025 and 2024 were $0. The The allowance for sales returns and doubtful accounts at JuneSeptember 30, 2025 and December 31, 2024 aggregated $7,000.

Inventory – Inventory, consisting principally of products held for resale, is recorded at the lower of cost (determined using the first in-first out method) and net realizable value. We had inventory balances in the amount of $2,182,000$2,098,000 and $2,949,000 at JuneSeptember 30, 2025 and December December 31, 2024, respectively, which is presented net of valuation allowances of $5,161,000 and $5,152,000, respectively. We evaluate inventories inventories to identify excess, high-cost, slow-moving or other factors rendering inventories as unmarketable at normal profit margins. Due to the large number of transactions and the complexity of managing and maintaining a large inventory of product offerings, estimates are made regarding adjustments to the cost of inventories. If our assumptions about future demand change, or market conditions are less favorable favorable than those projected, additional write-downs of inventories may be required. In any case, actual amounts could be different from those estimated.

In accordance with generally accepted accounting principles, we have classified inventory as a current asset in our JuneSeptember 30, 2025, condensed condensed consolidated financial statements representing approximately 17% of current assets and 13%12% of total assets. However, if all or a substantial portion of the inventory was required to be immediately liquidated, the inventory would not be as readily marketable or liquid as other items included or classified as a current asset, such as cash. We cannot assure you that demand in the discrete semiconductor market market will increase and that market conditions will improve. Therefore, it is possible that further declines in our carrying values of inventory may result.

SecondThird quarter of 2025 versus 2024.

Net sales in the secondthird quarter of 2025 totaled $1,167,000$529,000 versus $1,224,000$1,187,000 in the comparable period for 2024, a decrease of $57,000$658,000 or 55.4% 4.7% over the same period last year. The decrease was primarily driven by athe decreaseimpact of significantly varied tariffs due to fluctuating trade negotiations on Chinese goods resulting in our significant drop in demand for our ODM componentsproducts sales volume.

Gross profit for the secondthird quarter of 2025 was $717,000$327,000 versus $662,000$552,000 in the comparable period for 2024, and gross margin percentage of net net sales was 61.4%61.8% in the secondthird quarter of 2025 versus 54.1%46.5% in the comparable period for 2024. The approximately 7.3%15.3% gross margin percentage percentage increase was driven by sellingthe higherdecrease marginof products.tariff costs for product shipped in the third quarter of 2025 (see Note 8 – Tariff Costs).

Selling, general and administrative expenses in the secondthird quarter of 2025 totaled $575,000$516,000 versus $583,000$530,000 in the comparable period for 2024.

Other income, net, in the sixnine months ended JuneSeptember 30, 2025 was $764,000$841,000 versus $813,000$976,000 in the comparable period for 2024. Other income in 2025 was primarily $321,000 $733,000 from unrealized capital appreciation from short-term investments and $426,000 from the recovery of excess tariff refunds.

Income tax provision was $8,000 for the sixnine months ended JuneSeptember 30, 2025 versus $15,000$23,000 in the comparable period for 2024.

Net loss was $613,000$671,000 for the sixnine months ended JuneSeptember 30, 2025 versus net income of $958,000$1,203,000 in the comparable period for 2024, a decrease of $1,680,000$1,874,000 resulting from the reasons discussed above (see Note 6 – Restructuring and Severance Compensation Expense).

Cash flows provided by operating activities were $202,000$598,000 as opposed to ($342,000$374,000) used for in the sixnine months ended JuneSeptember 30, 2025 and 2024, 2024, respectively. The increase of $544,000$972,000 in cash flows provided by operations compared with the prior period resulted from changes in operating assets and liabilities, primarily from accounts payable, inventory and restructuring expenses of $1,579,000$1,256,000 (see Note 6 – Restructuring and Severance Compensation Expense).

Cash flows used for investing activities were ($8,000$14,000) and ($228,000) which related to the acquisition of property and equipment in the six nine months ended JuneSeptember 30, 2025 and 2024, respectively.

Cash flows used for financing activities were $602,000$813,000 and $903,000 for the sixnine months ended JuneSeptember 30, 2025 and 2024.2024, respectively.

Inventory is included and classified as a current asset. As of JuneSeptember 30, 2025, inventory represented approximately 17% of current assets and 12% 13% of total assets. However, it is likely to take over one (1) year for the inventory to turn and therefore is likely not saleable within this time frame. Hence, inventory would not be as readily marketable or liquid as other items included in current assets, such as cash.